“One of the basic rules of insurance is to spread risk. If you carve up the risk pool, it damages how well that insurance actually works.” Photo credit: Thinkstock

California is expected to weather federal changes to health insurance rules better than many other states, but it will still face declining enrollment and rising premiums, two new studies predict.

A Harvard-led survey of Californians who buy health insurance on the individual marketplace found that one in five would likely drop their coverage once they no longer face a tax penalty for being uninsured.

The penalty, also known as the “individual mandate,” will disappear in 2019 as part of changes in the tax bill adopted by Congress late last year. That could result in almost 400,000 people who currently purchase health insurance on their own forgoing insurance, the study found. That includes people who buy health insurance on the state exchange, Covered California.

“Obviously, that’s moving in the wrong direction,” said lead study author John Hsu, an associate professor of health care policy at Harvard Medical School. “We’d ideally like to see more people insured and have the financial protection of having health insurance.”

The decline in the number of people insured will likely lead to premium increases, both in California and across the nation, another study released by Covered California on Thursday predicted. That’s largely because healthier people will be more inclined to drop their insurance if they don’t face a penalty, while sicker people would stay enrolled, experts said. Some states could see as much as a 90 percent increase in premiums between 2019 and 2021, the analysis indicated.

California is expected to do a better job of reigning in insurance price increases, the study estimated, but the cumulative premium hikes could still be around 35 percent above current rates. Covered California Executive Director Peter Lee predicted premiums could rise by 12 to 16 percent in 2019 alone.

“Increases at this level are bad news for consumers,” he said in a statement. “But Californians would be in better shape than most of the nation would be.”

People likely to be most affected by the rate increases are those in the middle-class who earn too much to qualify for health insurance subsidies that help mitigate rising costs. Those consumers number about 800,000 people across the state, said Covered California spokesperson James Scullary.

Other factors could lead to further destabilization of the health insurance market nationwide, Hsu said. These include proposals by the Trump administration to allow the sale of cheaper plans that offer skimpier insurance than currently permitted under President Obama’s Affordable Care Act.

“One of the basic rules of insurance is to spread risk,” explained Hsu. “If you carve up the risk pool, it damages how well that insurance actually works.”

The good news is California’s health insurance marketplace is better prepared to weather the predicted changes than many other states, Hsu and Covered California officials agreed. While the Trump administration has slashed the marketing budget for the federal insurance exchange, California has poured money into marketing its own state exchange. Covered California also has the reserves and flexibility to adjust to the impact, Lee said.

Enrollment in health insurance through Covered California remained stable this year, with a total of 1.5 million people signing up. Nevertheless, reenrollments dropped by two percent, although Scullary said officials don’t yet know why. The drop could simply be a result of lower unemployment rates and more people getting health insurance through their jobs, he said.

Ultimately, those who will suffer most from the predicted changes are Californians who choose to go without health insurance, Scullary added.